Tuesday, December 25, 2007

Capital, the English weekly, reviews Alemayehu Fentaw's work on Ethiopian Law of Unfair Competition

Ethiopian Unfair Competition Law

By Kirubel Tadesse

It is a central tenet of a capitalist economic system that competition is desirable and needed. Underlying this is the belief that robust competition between commercial rivals keeps prices low, results in high quality and provides overall economic efficiency. If business organizations compete on a level playing field, it is believed that they will flourish, and consumers are more likely to pay lower prices, and get better quality and more choices.

Explaining state of business competition legislation, Alemayehu Fentaw (LLB) in his article ‘Ethiopian Unfair Competition Law: A Critical Evaluation’ writes that one fundamental purpose of the unfair competition law is to assure that competition is fairly and properly carried out. He explains that the rules against unfair competition aim at securing fair competition for consumers and traders through the preservation of goodwill. Many academic lawyers agree that goodwill and consumers’ expectations, however divergent, are directly related. A certain consumer, who is a habitual customer of a given trader, has a legitimate interest in the preservation of the trader’s goodwill, precisely because, in the eyes of the consumer, it is this trader and only this trader who can market products or services of the best quality or of the most quantity or of his taste or whatever at a relatively lower price. Put differently, the consumers’ interest consists in their right not to be deceived, misled, confused, or wronged as to the business,products/services, or commercial activities of the trader whom they look up to and continue to patronize. In Everett F. Goldberg’s, the Protection of Trademarks in Ethiopia, Journal of Ethiopian Law, the harm that a competitor does to his rival through unfair competition is explained as cutting down or taking away his clientele. However, each and every act of taking away a trader’s clients does not amount to an act of unfair competition. This is so, because such clients may be taken away by virtue of honest and proper competition. A case in point is a competitor taking away a good portion of his rival’s clientele by offering a product or service of better quality. yet, there are other trade practices that aim at taking away a competitor’s clients and thereby cutting down the goodwill, which are presumed to be unfair and improper, and, as such, are prohibited by law. In this sense, commerce is like a game in which competitors must play by the rules, which are the rules against unfair competition.

Alemayehu Fentaw explains in his article that the law of unfair competition is primarily comprised of acts that cause an economic injury to a business through a deceptive or wrongful business practice. In the words of Everett Goldberg, “Unfair competition is a particular type of extra-contractual liability. …unfair competition is a type of liability based upon fault.” Alemayehu also infers that unfair competition, as a species of extra-contractual liability, can be broken down into two categories: commercial unfair competition and, civil unfair competition.
The definition of commercial unfair competition in Art.133 of the Commercial Code has been supplemented recently by Trade Practice Proclamation No. 329/2003. Besides supplementing the Commercial Code’s definitional provision of commercial unfair commercial competition, the Trade Practice Proclamation broadens its scope of protection. According to Alemayehu’s article it prohibits three categories of unfair trade practices: anti-competitive practices, unfair competition, and abuse of dominance. Generally, unfair trade practices which may affect trade within Ethiopia are prohibited by the Commercial Code, the Civil Code, Trade Practice Proclamation, Trademarks Registration and Protection Proclamation, and the Criminal Code. However, since the scope of this article is limited to the second category of unfair trade practices known as “unfair competition”, no attempt shall be made to treat the remaining two categories. Generally, unfair trade practices which may affect trade within Ethiopia are prohibited by the Commercial Code, the Civil Code, Trade Practice Proclamation, Trademarks Registration and Protection Proclamation, and the Criminal Code.

Alemayehu, invoking Article 133 of the Commercial Code, defines any act of competition contrary to honest commercial practice as ‘unfair’. He explains unfair competition as any act likely to mislead customers regarding the undertaking, products or commercial activities of a competitor and as any false statement made in the course of business with a view to discrediting the undertaking, products or commercial activities of a competitor. “Unfair competition depends upon commercial custom in determining what acts are honest and what are not. By virtue of its flexibility, the general standard requires judges to exercise their discretionary powers. In exercising their judicial discretion, the judges must take into account the peculiarities of each case as well as the historical and cultural context in which the case arises,” said Alemayehu Fentaw in his article.

“Any act gives rise to liability if it is likely to mislead customers”, though it does not create actual confusion. It is sufficient that an act passes the test of likelihood of confusion. One standard example of an act of unfair competition that is likely to mislead or confuse customers is trademark infringement. To prove a claim of unfair competition based upon trademark infringement, it is not necessary to prove actual confusion of specific customers. Proof of the likelihood of confusion in the market circumstances satisfies the requirement, so that similarity between two marks can make the case for unfair competition. Strictly speaking, sub-art (2) (a) does not grant legal rights in trademarks beyond registration. However, sub-art (2) (a) affords a remedy for unfair competition involving special designations, including trademarks. Unlike trademark infringement claims under the Trademarks Registration and Protection Proclamation, unfair competition claims do not require any registered marks. As a result, sub-art (2) (a) of Art.133 involves all unfair competition claims based upon trademark infringement and extend further to cover other situations of unfair competition. A likelihood of confusion exists when there is confusion as to the enterprise/undertaking/business, products and services, or commercial activities. More particularly, confusion may occur with respect to any of the following: (a) trade-names, (b) distinguishing marks, (c) the appearance of a product, and (d) the presentation, including advertising, of products or services,” illustrates Alemayehu Fentaw in his article. “Sub-art.(2) (b) of Art.133 broadens the touchstone of liability for unfair competition by making actionable any false statement that is likely to discredit or compromise the reputation of a business or its activities, when made in a competitive context. A claim of unfair competition under sub-art (2) (b) requires a showing that a party made misrepresentations in the course of business. The elements an alleged injured party must show to sustain a claim of unfair competition based on false discrediting statements are: a party uses any false statement in the course of business to misrepresent the nature, characteristics, qualities or geographic origin of a competitor’s undertaking, goods or services with the purpose of discrediting the establishment, products or services of a competitor,” he further explained in the sub-section on ‘False Discrediting Statements’.

Alemayehu points out that unfair competition is also subject to regulation by legislation, the Trade Practice Proclamation No329/2003. Commenting on the definition of unfair competition in Art.10 of this Proclamation, he said “First, it is important to bear in mind that the logical organization of Art.10 is parallel to that of Art.133 of the Commercial Code. Despite the absence of the test of honest commercial practice in sub-art.(1) of Art.10, unlike sub-art.(1) of Art.133, both deploy general standards: likelihood of elimination of competitors in the former and contrariness to honest commercial practice in the latter. Also sub-arts.(2) of the two articles consist of specific standards. The difference between these sub-articles lies in the former’s inclusion of such activities as provided for in (d), (f), (g), (h), and (i). In Alemayehu’s opinion, the whole of the provisions under sub-art(2) can be reformulated in such a manner as to avoid redundancy, which he suspects has been an outcome of bad legislative draftsmanship. In this regard, his proposal is to merge some of the provisions together as follows:

a)and (c): Misleading/confusing activities;
(b)and (e): False discreditory statements;
(d): Secret information;
(f) and(g):Restricting, impeding, debaring, or weakening the competitive(efficient) production and distribution of goods and services;
(h): Dumping, and
(i): Trading in humanitarian aid.

With respect to sub-art.(2)(d), it is interesting to note two serious pitfalls. That the information has to be secret is self-evident in as much as what is prohibited is the acquisition, disclosure, or use of such information contrary to honest commercial practice. But, what kind of information is considered secret is not clear. Besides, the legislation fails to pin down the nature of the sort of information that it purports to protect. The legislation should have made it explicit that to qualify for protection, a piece of information should not only be secret, but also a trade secret. He concludes his article by pointing out one serious procedural lacuna, the absence of a rule precluding the administrative tribunal known as the Investigation Commission where a proceeding for unfair competition has been instituted in a regular court prior to any time before a complaint has been brought before the Commission. He contends that this violates an important consideration of fairness, as it in effect subjects a defendant to two forums on the same matter.